Facilitation of Entrepreneurship: The Role of Institutions and the Institutional Environment

The basic idea of an institution (formal and/or informal) may be conceived as an aggregate structure that has an influence on the individuals. Entrepreneurship is observed to be dependent on institutions for its performance. Constraining and enabling functions of institutions impose certain frameworks and structure the incentives which promote or limit entrepreneurial activities. Therefore, for better results the focus should be on institutional reform rather than on increasing inputs. But, there is no one set of institutions that suit all societies and the efficacy of an institutional set-up is influenced on the availability and quality of several complementary factors. The purpose of this paper is to bring together different threads of research and provide an overview of the institutional framework for entrepreneurship. The authors have carried out an extensive literature review, combining the views of old institutional economists with recent literature, and have attempted to provide an institutional framework for entrepreneurship by clustering the various institutional variables related to entrepreneurship development under four categories: (i) opportunity-related variables; (ii) security-related variables; (iii) efficiency-related variables; and (iv) variables related to the social and political environment. The authors hope that this framework would provide a better understanding of the importance of the role of institutions for entrepreneurship development.